This link has led to the fear that the Whitman tax cut would simply result in a dollar-for-dollar rise in local property taxes, thus negating any savings that taxpayers might realize.

—Tim Goodspeed, November 1997, Manhattan Institute Report, considering the link between state income tax, property tax, and school funding. Goodspeed remarks on the potential for Whitman’s income tax cuts to lead to a corresponding increase in property taxes. Because 80% of income tax revenue would go to school districts, and 20% would go to municipal aid and the homestead rebate, a decline in income taxes could yield a corresponding increase in property taxes to maintain funding across each of these budget items: schools; municipalities; and homestead rebates.

Goodspeed goes on to suggest that the flypaper effect would mitigate increases in property taxes, and the early reports were great. Jim Saxton said, in a report to congress,

A recent study by two economists from the Manhattan Institute, Timothy Goodspeed and Peter Salins, shows that most New Jersey localities did not raise property taxes after the Whitman tax cuts. A few localities raised taxes. On average, for every dollar cut in state income taxes, local taxes rose by only twenty-two cents. A typical household saved over $200 per year in state taxes. Households still witnessed a net tax cut of $156 dollars. The well-being of the New Jersey family is that much better by controlling more of their own resources.

Nonetheless, Goodspeed’s report does assent that “higher income districts…tended to raise their property taxes by more than other districts after the Whitman tax cuts,” which would account for the few localities that raised taxes. As we now know, these were soon followed by increases across the board, belying the flypaper effect.

GOV. CHRISTINE TODD WHITMAN: Yes, property taxes are going up, but that’s a function of local spending. It is not inexorably linked to the income tax, which is what everybody wants to make it seem. When my predecessor raised taxes $2.8 billion and put $1.5 billion directly into the school districts, through the Quality Education Act, property taxes still went up.

MAN ON STREET: The fact is that income tax cut only lowered our income tax by a miniscule amount, and in order to make up for the difference for the school budgets and whatever the townships need, everybody had to get a raise in their property taxes. My property taxes in the township I live in went up 14 percent, which equated to about, uh, $475 this year, because of the fact that she cut our income tax or gave us a reduction.

Real reform is going to require really tough choices at the local level. Our citizens should be asking why New Jersey, the most densely populated state in the country, spends more than any other state to bus a child to school. Citizens should ask, ‘Does New Jersey really need 1,600 separate units of local government?’

—Whitman, in a speech to lawmakers on January 26, 1999, intimates that the structural issue behind property taxes resides at the municipal level. Nonetheless, she outlined an aggressive spending plan that did little to lower property taxes aside from introducing rebates. Assembly Speaker Jack Collins, a republican from Salem County, called it “a Christmas budget…Everyone should be happy with it. I think that it touched on every segment of our society: education, crime, the elderly and tax relief. I think it should be getting bipartisan support.” Democrats, on the other hand, remained concerned, and the democratic assembly leader, Joseph Doria of Hudson County observed, “New Jersey residents will still be the most highly burdened taxpayers in the country.” Whitman, however, continued to push the property tax issue from the state to the local level, which meant asking 566 cities and towns, 21 counties, 188 fire districts, and 611 school districts to sit down and sort it out — good luck with that.

Taxes in New Jersey represent 1.74% of a home’s value, compared with the national median of 1 percent. Essex county carries the fifth highest tax burden per a person, nationally. Westchester comes in first, with Putnam County, NY [oddly] coming in at number 10.

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[…] In 1976 the New Jersey Supreme Court ruled that school district funding based on property taxes disadvantaged poor districts. The court ordered the state to raise supplemental revenues and provide “indirect property tax relief” to poorer districts. The decision spawned New Jersey’s income tax. Today, 78% of the fund supports 605 school districts, 31 court-designated low-income “Abbot districts” account for nearly half of these dollars. New Jersey’s 566 municipal governments receive 6%, and the remaining 15% is shared through homeowner rebates, such as the homestead act. Eileen Norcross notes the abysmal results of the system: […]